World’s Most Admired Companies Rank:23
Headquarters: Issaquah, Wash.
Employees: 185,000
The Business: Operating membership warehouses that sell food, electronics, apparel, and hardware, among other goods.
From coffee to candy, collared shirts, and coffins, it’s tough to find an item you can’t buy — even in bulk — at Costco. The wholesale retailer was founded in 1983. It is the biggest specialty retailer in the U.S. and the only top-10 specialty retailer with a membership model. Low prices, expert merchandising, and industry-high employee wages are what’s behind Costco’s success. Now its executives are pushing wholesale shopping internationally. They’re getting results: Overseas sales more than doubled from 2008 to 2013. While other traditional American retailers struggle to remain competitive in international markets, Costco’s no-fuss warehouse-shopping model is a new experience for foreign consumers. Surprisingly, people in Asian markets are adapting well to shopping in bulk — even if it means strapping pallets of toilet paper and oversize teddy bears to the back of their mopeds as they zoom away from the parking lot.
Earned trust
Costco’s strategy is to make sure its customers come back. While the average discount supercenter stocks about 100,000 items at a 25% margin, Costco sells just 4,000 items at an 11% margin. Although the retailer carries less selection, its merchandisers are meticulous about their choices and set detailed standards on everything from the size of cashews to the thread count of bed sheets. That unbeatable value proposition on quality products has inspired roughly 90% of Costco’s 72.5 million cardholders worldwide to renew their $55 to $110 memberships each year.
Employees before profits
Unlike most retailers, Costco does not see raising employee salaries and growing profits as competing goals. While the average hourly wage for a full-time worker at Wal-Mart is $12.81, Costco pays its workers an average of nearly $21. Costco sees the return on this investment in its low employee turnover rates: Just 10% in 2013 and 7% for employees who have worked at least one year. (Wal-Mart and Sam’s Club refused to disclose turnover rates after repeated requests.) High employee retention allows the wholesaler to cut down considerably on training costs. Costco’s founders set out to pay “a good living wage,” says chief financial officer Richard Galanti. “We are never going to mess with that.”
Breaking new ground
In 1985, Costco opened its first warehouse outside the U.S., in Canada. Today the retailer boasts 187 locations in Canada, Mexico, the U.K., Japan, Taiwan, Korea, and Australia; roughly 28% of Costco’s sales the past two years came from outside the U.S. Costco has two stores planned for Spain in 2014, its first in continental Europe. Spain presents the perfect opportunity for growth as it recovers from its worst economic downturn in decades, Galanti says.
This story is from the February 3, 2014 issue of Fortune.
